If you own a home, you most likely have homeowners insurance since banks require it if you have a mortgage and if you paid cash you will want to protect your investment. So, deciding to carry homeowners insurance really isn’t a difficult decision. Choosing what kind and how much to carry is a whole different story.
What Type of Homeowners Insurance Policy Should I Get?
Dwelling Fire Form: covers only the dwelling for damage caused by fire, smoke, windstorm, hail, lightning, explosion, vehicles, and civil unrest. Best for vacation homes or if you are ineligible for other forms of coverage for some reason.
Basic Form: covers your property for all of the same causes covered in the dwelling fire form and also in cases of theft or vandalism.
Modified Coverage Form: covers the same set of damages covered by basic form but allows for rebuild cost to exceed market value of the home. This type of policy is common for older homes.
Broad Form: in addition to covering damages included in basic form, also protects you against trees and other falling objects; weight of ice, snow, and sleet; and freezing, rupturing or sudden and accidental overflow of a plumbing, heating, air-conditioning or fire-sprinkler system or household appliance.
Special Form: protects you against all damages except those caused by flood, earthquake, war or nuclear accident. This is the most popular homeowners insurance policy.
How Much Insurance Do I Need?
You should carry enough insurance to cover the replacement cost of your home. Do not confuse the replacement cost with the market value of your home since the market value includes the price of the land your house sits upon. Depending on where you live, the land could be worth more than your home. If you are quoted a policy that seems substantially cheaper than other options, be sure that the provider isn’t quoting you a policy that covers only the actual cash value (deducts depreciation from the value of your house and personal property) rather than replacement cost.
In addition, you will want to make sure your personal property is adequately covered. Most policies value your personal property at 50% of the value of your home. If you own a lot of valuables but live in a modest home, you may need more coverage which most insurers will provide through riders.
Finally, your homeowners policy will typically include $100,000 in liability coverage to cover medical payments and legal costs related to liability claims against you. If those costs exceed $100,000 you are at risk of losing assets such as your home, car, and investments so you may opt to pay for additional liability coverage. Experts recommend carrying $300,000 in liability coverage.
How Can I Save Money On My Homeowners Insurance?
Shop Around: Consult with friends, consumer guides, insurance agents, and online insurance quote companies. Be sure to search for companies that service your specific location. Once you have an idea of price ranges and a reasonable list of companies to consider, check their financial stability with Standard & Poor’s or A.M. Best. Then, check their customer service record with consumer magazines.
Don’t Hop Around: Once you’ve gone through the trouble of carefully selecting an insurance company, it pays to stick with them since many will offer you loyalty discounts after a few years.
Bundle Your Policies: Many insurance companies will discount your rates if you carry more than one type of policy with them. So, consider buying your auto and homeowners policy from the same company.
Make Home Improvements: Some insurance companies will reward you for reducing your risk of damage with lower rates. Consult your carrier to find out if you can get discounts for having storm shutters, a reinforced roof, or for updating your heating, plumbing, or electrical systems.
Install Security: You can typically get a discount on your homeowners policy if you have a security system and/or sprinkler system. Some companies will provide additional discounts for smoke detectors or deadbolts.
Ask For Other Discounts: Some insurance companies offer discounts to retirees or seniors. Likewise, other companies may offer discounts to military members or veterans. It doesn’t hurt to ask, so be sure to inquire if there are any additional discounts for which you might qualify.